What Are “Exemptions” in Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is also known as dissolution bankruptcy, because the bankruptcy trustee takes control of the filer’s assets and sells them to satisfy as much debt as possible. However, there are limitations on how much the trustee can take. State and federal law allow you to exempt certain amounts in various categories. In Virginia, your state exemptions in Chapter 7 bankruptcy are as follows:
- Homestead — You can exempt the value of your home up to $5,000. However, debtors aged 65 and older may exempt up to $10,000. Surviving spouses or minors are eligible for a $20,000 homestead exemption. That’s not likely to save your home, but at least you can recover that much of your equity.
- Vehicle — You can exempt up to $6,000, applying the exemption to one or more vehicles.
- Tools of your trade — Virginia allows you to exempt up to $10,000 so you can continue to practice your craft.
- Clothing — $1,000.
- Household furnishings — $5,000.
- Firearms — $3,000.
- Retirement funds — Your 401(k), 403(b), 457, and IRA are safe under the Code of Virginia and federal bankruptcy law. Virginia exempts state and local government employees’ retirement funds.
- Life insurance — The cash value of your policy is protected (as of July 1, 2016).
- Alimony and child support — Recipients can exempt their monthly payments.
- Wages — You can exempt three-quarters of your earnings in your bank account as long as you can show that’s how you got the money. Direct deposit helps verify your eligibility.
- College savings — Funds in a 529 college savings plan are fully exempt if they were deposited more than two years ago. Funds on deposit for less than two years are exempt up to $5,000. However, if you set up a Virginia 529 Plan, your funds are fully exempt right away.
Although some states allow filers the option of choosing federal exemptions, Virginia does not.
To get the most out of your bankruptcy exemptions, you need reliable, personalized legal advice. Call Miller Law Group, P.C. today at 434-202-5293 or contact us online to make an appointment for a FREE consultation.